Cellular operators seek higher income from enterprise services

With subscriber growth in cellular services largely expected to come from rural areas with lower average revenue per user, Indian cellular services providers are now looking for higher income from enterprise services such as data carriage, storage and management of total telecom infrastructure for companies.

Typically, the enterprise segment of telecommunications business constitutes all services such as fixed line, mobile, data carriage, data storage and managed services provided to companies.

According to technology research firm Frost & Sullivan, such services contributed around Rs40,000 crore out of Rs95,000 crore revenue earned by Indian telecom companies in 2006-07. Data services and managed services constituted 16.6% and 4.3%, respectively of the total enterprise segment revenue. The data services business alone is estimated to grow to 20% of the Rs62,000 crore estimated revenue from enterprise segment in 2009-10.

Data carriage services business, provided primarily through broadband, and storage services, which are offered through dedicated servers, have around 40% to 42% operating profit margins, 10 percentage points higher than the margins from mobile services. And managed services have even greater margins than that of the data services. These services, coupled with the basic need of fixed-lines and mobiles services, is helping the Indian cellular service providers offer an integrated solution to the enterprise. And it is this segment that the cellular service provider companies are aiming for greater revenue with higher profit share.

“Enterprise services is a key component in our overall growth strategy,” says Ruchir Godura, chief marketing officer (enterprise services), Bharti Airtel Ltd, the largest cellular service provider in the country with more than 42.7 million subscribers. “The company is aiming for 40% to 50% of its revenue to come from the enterprise services in the next three years, up from 30% currently.” It reported Rs20,012 crore revenue in 2006-07, but hasn’t provided revenue projections in the next three years.

India’s largest long-distance telecom company, Videsh Sanchar Nigam Ltd (VSNL), is the biggest player in the domestic data services market with about a 20% market share.

“It is the mid-size companies who are now driving the growth for data services in the country with their aggressively information technology adoption plan,” said Srinivassa Addepalli, vice-president (corporate strategy), VSNL. The company with its sister concerns— Tata Teleservices Ltd and Tata Teleservices (Maharashtra) Ltd—has formed a strategic unit called Tata Indicom Enterprise Business Unit, to woo corporate clients with an offering of an integrated solution. Tata Teleservices did not respond to Mint’s queries.

According to rating agency Crisil Ltd, the demand for bandwidth—the amount of data that can be transmitted over a network—is estimated to go up to 53.6GB in 2009-10, from 19GB in 2006-07.

“As mobile users move towards rural market, companies are balancing it with higher side of enterprise business,” said Manoj Mohta, head of research, Crisil Research and Information Services.

The country’s second largest wireless service provider Reliance Communications Ltd (RCom) is also targeting the small enterprise segment for the data business, with a plan to expand Wimax—the wireless broadband service—from two cities now to 12 by the end of 2007.

In rolling out the broadband wireless network, RCom is able to utilize extensive metro fibre rings that it had in place as the back-end for its wireless access network. “This is significantly reducing the cost of our roll-out,” said Prakash Bajpai, chief executive officer (broadband business), RCom.

The company has a fully Internet protocol-enabled optic fibre network of more than 100,000km, out of which 22,000km network is intra-city, helping a cheaper roll-out of Wimax. It is aiming to double its revenue from the enterprise segment in the next two years.

While data services give higher profit margins, the margins on mobile services and fixed line services for firms are slightly less than those generated from retail customers.

“Bundling mobile and fixed line services with data and managed services helps the cellular services company provide their enterprise customer one stop solution,” says Saurabh Kaushal of Frost & Sullivan.